Starting Out

By Wendy Grossman

12:08AM BST 31 Mar 2003

No one, you might think, could possibly have a small business in the insurance field. Aside from the fact that you'd be competing with huge companies, you simply couldn't amass the necessary capital. But Daniel Mitchell's company, The Source, managed to find a niche - supplying settlement services for IT claims.

The big insurance companies are his customers. Typically, he says, the company has three to five-year contracts with its customers, and will be the only company handling their claims. Similar companies exist in other specialities such as jewellery.

"We started the company in 1993," he says, "but we didn't get active in this sector until about five years ago."

The original idea was to sell spare parts - the kinds of pieces that become difficult or expensive to source once a computer is more than a year or two old - to maintenance companies.

Mr Mitchell insists the business began with zero funding. "We started on an absolute shoestring," he says of the days when the business was just Daniel and four equally broke friends.

"We worked on suppliers' credit, and then we eventually got some bank debt. The bank arrangement was pretty typical. They'd look at our debtor book and lend us a percentage of that."

Even the fledgling business premises, an industrial unit, didn't require up-front expenditure. "I think I did a deal where we got six months' rent for free or something."

Most of The Source's business is dealing with domestic claims, some 2,000 a month. The company handles the phone calls, collects and inspects the equipment, and arranges for repair or replacement.

The job, Mr Mitchell says, is rather delicate, since the only time most insurers have direct contact with their customers is when they renew their policies or when they file a claim. Handle the claim badly and the insurer loses customers.

Now that life insurance is no longer the profitable mainstay it was, insurers pay increasing attention to other parts of their business. Lost customers represent a considerable expense, since it costs 10 times as much to attract new ones as to retain the existing ones.

Even though Mr Mitchell was only 23 when he started The Source it wasn't his first company. He had been selling office equipment after leaving college at 18, thought he could do better than his employers and set up a similar business at 19.

"I failed rather spectacularly," he says. "But I learned lessons - not having a plan, no structure, not knowing how to deal with banks, suppliers, or customers. I had done very well as a salesman, but I didn't really understand anything other than that."

At that point he went to work for a financial services company, where he learned about finance and "what makes a company tick". All of this experience was valuable when starting up The Source.

The company effectively reinvented itself in 1999, when its early activities in the insurance market began to pay off with rapid growth. At that point, the company raised £500,000 from "angel investors" to fund its growth.

"The interesting thing," says Mr Mitchell, "is that we could have done without the money. What having the money gave us was more discipline as a business because we took on board a non-executive director, we created a shareholder's agreement, and we started having regular board meetings with a full pack prepared.

"So even though the business was still relatively small we began running it along much more professional lines and in retrospect that was far more valuable than the money."

The Source spun off the original parts business (as RapidSource IT) about 18 months ago, although Mr Mitchell is still involved in running it. The money was spent primarily on marketing to develop the brand so that when the company landed meetings with potential customers the name sounded familiar.

Three years later, "we're never pitching to a new piece of business," says Mr Mitchell. "We refer to x, y, z insurance companies. That makes everyone feel safe."